1
The authors wish to take this opportunity of expressing their gratitude to the numerous films which, often at considerable trouble to themselves, assisted in their inquirles by completing questionnaires and answering other questions; also to Mr. O. D. Bisset, Chairman, Hire Purchase Section, Sydney Chamber of Commerce; Mr. W. D. N. Johnson. Secretary, Master Drapers' and Traders' Association of Victoria: the Governor and officers of the Commonwealth Bank; and many others including officers of banks and life assurance offices (who wish to remain anonymous) for generous assistance; and to Dr. A. R. Hall and Mr. H. M. Knight for helpful advice and comments.
2
In New South Wales, statistics of cash order turnover have been collected since 1946 by the N.S.W. Department of Justice and are published in the Official Year Book of N. S. W. In Western Australia. certain types of hire purchase agreement are object to compulsory registration and statistics can be extracted but are not officially published.
3
Commonwealth of Australia. Board of Inqauiry Appointed to Inquire into Hire Purchase and Cash Order Systems. Report on Hirs Purchase (1941)' and Report on Cash Order (1941). Commonwealth Government Printer.
4
American: “Charge Account”.
5
“Lay-by” has not been included. Whether it should be regarded as a form of consumer credit in a moot point. The customer (who does not obtain possession of the article until full cash payment is made) is likely to regard lay-by as a form of personal saving, advanced by him to the retailer, rather than as credit given by the retailer to him. From the point of view of the retailer, however, an article earmarked under lay-by is withdrawn from his stocks as effectively as under hire purchase; and, as under hire purchase, he has to wait for payment in instalments. Since for most purposes for which consumer credit statistics are of interest to the economist, the significant aspects are the rate of flow of orders by retailers for the replenishment of stocks and the rate of contractual saving by consumers, rather than the satisfactions enjoyed by consumers, it would probably be reasonable to include lay-by in consumer credit statistics
6
The earlier survey covered only 70 companies. Its objectives were limited, and details will not he given here. Full particulars are available in a thesis “Instalment Credit in Australia and the United States” by P. S. Shrapnel 1951. filed in the library of the University of Queensland.
7
If answers of retailers and others, giving the useful information that they handled no H.P. business or carried no H.P. paper themselves, are included, the positive response can be put at 18 per cent: many of the latter firms, moreover, provided data on Entry Account credit. Normal lack of interest in. or suspicion of. an inquiry of this type on the part of business firms no doubt accounts for most of the failure of firms to go to the trouble of answering the questionnaires. But the facts that the covering letter bore a “Canberra” letterhead. that the questionnaire coincided with the onset of troubled business conditions, and that it was impossible to follow up the questionnaire by personal interview except in a few cases. probably contributed to the lack of response. It is also clear that most firms were genuinely unable to provide breakdowns of hire purchase data by commodity groups because they have, or believe they have, no need of such breakdowns for their own business purposes.
8
In the case of retailers or motor vehicle dealers. this was in most cases impossible because their balance sheets do not usually separate H.P. from other (especially Entry Account) “debtors“: the same is true of some H.P. finance companies, but here the proportion of other debtors is usually very small and can readily be allowed for.
9
Questionnaire returns on the cash loan business of a few cash order firms suggest that the growth of cash loan turnover mom or less kept in step with the growth of cash order turnover during the post-war years. But this mar not be representative.
10
Commonwealth Statistician, Australian Banking Statistics, Monthly Bulletin No. 79, March 1962: earlier figures also in Finance Bulletins.
11
No published information in available concerning the purposes for which these advances are granted; nor do the banks themselves seem to collect such information for their own purposes. The impression among bank officers is that the classification in Category C.2. while nut altogether reliable, broadly coven non-housing consumer credit. It certainly excludes professional advances (e.g. to dentists or doctors) included in Class 5, and advances for house purchase and construction included in Class C.1. While it may include some small advances used by individuals for business purposes, other categories (e.g. A.I) may include some personal advances granted. e.g. to farmers. Category C.2 includes advances used for house repair and maintenance by home-owners, but this is not unreasonably included in “medium-term” consumer credit.
12
After consideration of various alternatives. the most plausible assumption has appeared to be that Category C.2 advances grew at the same rate during the years 1945-47 as during the later years for which statistics are available
13
An officer of a large life office, in February 1952. kindly provided the following information on the purposes for which policy loan credit is used: “Motives for requesting a loan are not queried. However, it is the considered view of the Claims Officer of [this Office] that the most usual items have been in order of ranking (frequency not amount of advances), (1) consumption expenditure (doctors' bills, holidays. furniture). (2) repairs to home, (3) income tax, (4) capital goods. Since the restriction of overdraft credit in the past six months, there has been an increase in such items as cars and trucks for business, additional stock for small shop or factory, and occasionally, tools of trade. However, this category is still relatively small.” In the light of this information, it has not been thought necessary to make any deductions from policy loans on account of loans for business purposes.
14 For the years before 1948. the published data relate. not to June 30, but to the balancing dates of the various offices: but It has not been difficult to make the necessary small adjustment.
15
A comparison of outstanding balances and new loans granted yields a surprisingly high ratio of balances to turnover. The ratio fell sharply during the post-war Years (mainly because new loans granted. after lagging behind repayments at the end of the war, far outstripped them in the later years). but by 1951 balances were still 4.5 times as large turnover, suggesting an average period of repayment longer than the maximum of 3 years which was suggested above for “medium-term” consumer credit. The high quality of the security which policy holders can one may sufficiently account for the unusually long average period of repayment. In view of the similarity of the purposes for which this credit is granted. it seems reasonable to stretch the definition of “mediumterm” credit to cover these loans.
16
The figures for H.P. balances given here are somewhat smaller than those given in Tables I and II. The difference in due to the exclusion here, and the inclusion in Table I and II, of hire charges. It is customary for H.P. dealers to enter H.P. debtors in their balance sheets including these charges (which comprise unearned interest and other charges, including insurance in the case of motor vehicles) because the hirer in advance. For comparison with bank overdrafts and other types of consumer credit, however, interest payable must clearly be excluded. it is amusing to note that this difference in the trestment of hire purchase and bank overdraft balances is not confined to conventional accounting practice. Consumers themselves generally include interest payable in reckoning their hire purchase debts, while they would not think of considering themselves indebted to their banks by more than the amount of their overdraft.
17
White Paper on National income and Expenditure 1961-52.
18
The more rapid rise in retail sales than in personal incomes in 1946-47 reflects a sharp drop in net personal saving. from £223 million in 1945-46 to £98 million in 1946-47. Similarly, the fact that retail sales fell behind in 1960-51 harmonizes with a 50 per cent rise in net personal saving out of gr eatly increased personal incomes in that year.
19
The Commonwealth Statistician's statistics of retail sales cover only the last three years. But it has been possible to extrapolate the durable goods series back to 19466-46 on the basis of data on total sales provided in questionnaire returns by 40 firms (chiefly department, furniture and clothing stores). The simple index corresponded very satisfactorily with the official index for the years 1948-49 to 1950-51. The Commonwealth Statistician's series for motor vehicles includes sales of parts and petrol and seems less satisfactory also for other reasons; but as the basis for an index of the growth of motor vehicle sales, it has seemed acceptable. It has been extrapolated back to 1945-46 on the basis of the national Income White Paper figures for “investment in motor vehicles”.
20
An International Unit, as used by Mr. Colin Clark, is defined as a quantity of goods and services that would have exchanged for £1 in the U.S. A. over the average of the period 1925-34.
21
According to Mr. Colin Clark, the long period trend of real product per man-hour from 1920 to 1950 showed an increase at the rate of 1.96 per cent per year in the U.S.A. (Review of Economic Progress, march, 1951), whereas over the same period It increased by only 1.14 per cent per year In Australia (idem, September/October., 1951). These figures include all activities and the discrepancy would be much greater we compared real product per man-hour in the manufacturing industries only.
22 Of course. part of the increase in consumer credit granted during the post-wear years was swallowed up in rising prices. Since no index exists for the retail prices of durable consumer goods, an attempt was made to construct an approximation to it from questionnaire returns by dividing the amounts advanced in each year (after allowing for cash deposits) by the corresponding “number of hirings”. A suitably weighted composite index was thus constructed covering new and used cars, furniture and domestic appliances. Using this index it was ofound that the rise in H.P. consumer credit turnover between 1944-45 and 1950-51 was 22-foid in money terms and 10-fold in real terms.
23
Cf. “Deliberate Saving and the Consumption Function”, Economic Record, June, 1951.
24
The decline in the total for bank overdrafts, and in the contribution of bank finance, in 1950 represents no general trend but s entirely accounted for by a new departure by the largest H.P. finance company, the Industrial Acceptance Corporation, which in 1950 floated over 15 million of short-dated and long-dated debentures, using the proceeds to repay most of its bank overdraft; £1 million of these debentures, however, were, according to the prospects, taken up by the company's bank itself. In the cumulative totals given at the end of the last paragraph, debentures sold to the public have been added to new capital issues, those taken up by the bank to bank overdrafts. The technique of raising funds by the issue of short-dated debentures has also been adopted by the General Motors Acceptance Corporation which, however, as a branch of an American corporation, publishes no balance sheets and is not included in the sample of 19 companies.
25
These figures slightly overstate the contribution of new capital issues and understate the contribution of reserves since the former include a few bonus issues.
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